ENGLISH VERSION

1

Table of Contents PREFACE ........................................................................................................................ 2

INFOGRAPHICS: PAKATAN RAKYAT TOP BUDGET POLICY PRIORITIES ....................................................... 4

MACROECONOMIC OVERVIEW .................................................................................................................... 5

FISCAL: REVENUE ........................................................................................................................ 7

FISCAL: EXPENDITURE ...................................................................................................................... 11

PROJECTED BUDGET TO GDP ..................................................................................................................... 22

ECONOMIC MISMANAGEMENT OF BARISAN NASIONAL ......................................................................... 23

POOR GOVERNANCE .............................................................................................................................. 25

OVER-RELIANCE ON OIL AND GAS REVENUE ......................................................................................... 28

OUR TAX SYSTEM: CAPITAL GAINS TAX ................................................................................................. 31

TPPA ........................................................................................................................................................ 35

WELFARE BUDGET ...................................................................................................................... 39

A CASE FOR LIVING WAGE ..................................................................................................................... 40

HIGH COST OF LIVING ............................................................................................................................. 41

ACCESS TO PUBLIC HOUSING ................................................................................................................. 44

HOLISTIC RURAL DEVELOPMENT ........................................................................................................... 46

CONCLUSION ...................................................................................................................... 48

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PREFACE

The Pakatan Rakyat Budget 2015 offers Malaysians a sustainable and people-centric alternative national

budget. It is a counter-balance to the impaired financial administration of the Barisan Nasional

government. In this document, we will provide a critique of Barisan Nasional’s fiscal policies and suggest

viable alternatives.

We begin by reflecting upon the reminder of Allah SWT in the Surah Al-Baqarah verse 188:

And do not consume another’s wealth unjustly or send it [in bribery] to the rulers in order that [they may

aid] you [to] consume a portion of the wealth of the people in sin, while you know [it is unlawful].

The practice of the Malaysian Opposition in producing an alternative budget is not conventional in most

Westminster-based democracies. However, for the purpose of sharing our views and perspectives with

the people, we continue to craft the Pakatan Rakyat Budget every year to be scrutinized by the public. As

a fiscal tool, the efficacy of any budget must also be thoroughly assessed for good governance.

The Federal Government Budget 2015 will be the last one of the 10th Malaysia Plan (RMK10 2010-2015).

Last year, Malaysia’s Gross National Income (GNI) per capita was USD10,060 (RM32,134), breaching the

USD10,000 mark for the first time. With this achievement, the Federal Government projects Malaysia to

achieve the status of both a high-income and a developed nation by the year 2020.

Whilst achieving a high GNI per capita target of USD14,000 or RM48,000 may be possible by 2020, we

need more work to achieve ‘developed nation’ status. To be a truly developed nation, many more critical

metrics have to be achieved.

The measure of a developed nation goes beyond one narrow measure of material wealth. The following

three components (which also support economic achievement) are critical: the existence of vibrant

democratic social and economic institutions, a culture of good governance (with integrity, transparency

and accountability), and the supremacy of the rule of law based on social justice for all. For example, living

in a ‘developed nation’ means that people should enjoy an efficient health service that safeguards their

wellbeing, and communities should benefit from development projects that are sustainable and which

minimize damage to the natural environment.

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By such standards, the fact that we may have hit an average household income of RM5,900 a month as

recently claimed by a minister, becomes moot. Furthermore, the average income measure also hides

tremendous disparity in income attainment as a narrow rich group has been reaping most of the economic

gains. Many Malaysians are missing out. Recent government statistics show that there are 7.9 million

Malaysians who are eligible to apply for BR1M 3.0 because their household income is below RM4,000 a

month. Further statistics show that 78.6% of EPF contributors have an income of less than RM3,000 a

month. A shocking 40% of EPF contributors earn less than RM2,000 a month. The widening divide between

the rich and poor, urban and rural, and developed and developing, leaves the Malaysian dream of a high

income nation based on social justice and income equality, somewhat out of reach.

In addition, we note that the later part of our post-Independence period has been widely acknowledged

as a tale of underperformance. While we have overtaken some of our neighbors such as Indonesia,

Philippines and Thailand, we have been left far behind by South Korea, Taiwan, Hong Kong and Singapore

since the 1980s.

In this Pakatan Rakyat Budget 2015, we will continue to provide macroeconomic projections as well as

detailed fiscal analysis. We constructively critique the fiscal practices of Barisan Nasional and explain our

vision and policies for Malaysia. We know that the rakyat will be able to distinguish ours as the better of

the two different approaches.

This year’s budget moves away from focusing on showcase policies and programs which we may

implement in a Pakatan Rakyat federal government. Instead, we look at the urgent fundamental issues of

governance that need to be addressed under the current government. By focusing on governance, we will

pressure the Najib administration into implementing true economic reforms. We will fight and press for,

amongst others, reforms in governance, oil and gas revenue, tax policy, Trans Pacific Partnership

Agreement or TPPA, living wages and rural development. In so doing, the Pakatan Rakyat Budget 2015

will also show what it takes to be an effective and caring government.

We are confident that with continued constructive pressure on the current administration, some of our

proposals contained herein will be implemented. This is our commitment to delivering real social justice

outcomes to the rakyat.

Pakatan Rakyat Budget Committee,

Tuesday, 7th October 2014.

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INFOGRAPHICS: PAKATAN RAKYAT TOP BUDGET POLICY PRIORITIES

Pakatan Rakyat 2.6%

budget deficit

Rationalising oil and gas

revenue

Free but fair trade

Living wage for a decent standard of

living

Holistic rural development

Freedom from price

hikes

Better public housing for

all

Budget under control, cut wastage and corruption

Redirect more funds towards developmental

spending

Say "No"to GST and

"Yes"to CGT

5

MACROECONOMIC OVERVIEW

2015 is expected to be a challenging year. With global uncertainties, in particular the slowdown of China

(our biggest trading partner), the disruptions to our economy from the US monetary tapering and the

geopolitical risks in the Middle East and Ukraine, and falling oil and commodity prices, most economists

are projecting a cautious 5% growth target for Malaysia in 2015.

The Najib administration has continuously missed its own growth targets. It promised an average 6%

annual growth in its 10th Malaysia Plan and the reality is that growth has been languishing in the low 4%

to middle 5% range. In 2014, we saw better than expected first and second quarters, hitting numbers

above 6%. However the 2014 third and fourth quarters are expected to be much slower. As such, most

economists are expecting the final growth numbers for 2014 to be in the region of 5.5% to 5.8%.

Underlying the slowing economy is the continuous fall in crude palm oil (CPO) prices in the last six months.

In September 2014, CPO prices dipped below the psychological barrier of RM2,000 per tonne. The impact

of this drop is significant as palm oil is a RM80 billion annual export industry with some 400,000 jobs linked

directly and indirectly to it. We know that most of the 113,000 elderly Felda settlers are engaged in share

cropping and as such only realize about half of the net income from FFB sales. This being the case, low

CPO prices will result in double the amount of hardship for rural folks. On the back of this bad news, we

expect private consumption in the rural areas to drop significantly.

In the urban areas, the macroeconomic numbers are also not rosy. Malaysian household debt is at a very

high level, hitting 89.2% of GDP as of July 2014. Data from the Federation of Malaysian Consumers

Association (FOMCA) show the breakdown of debts to be as follows: housing loans 29%, car loans 51%,

personal loans 15% and student loans 33%. These numbers confirm that in urban areas (where the bulk

of private debt is captured) lower income households are experiencing crushingly higher cost of living.

We note that “real” inflation rate, as opposed to the official CPI, is likely to be higher by some 100 to 200

basis points. Prices for food and transport in particular has been steadily rising. According to a Reuter’s

economic data report in December 2013, the CPI rose 3.2% whereas inflation for food and transport rose

4.5% and 5% respectively.

On the ground, people are feeling the impact of real inflation. For example, we note with dismay, that the

cost of a cup of coffee at KL hawkers has now reach RM1.80, while the cost of one roti canai is now

RM1.20. With the introduction of the GST, the price of that cup of coffee could rise to RM2 and roti canai

price rise to RM1.30. On GST, we expect a short ramp-up in spending pre-GST followed by a significant

drop post-GST. Overall, we expect the distribution and retail sector to underperform in 2015.

In addition, many of the middle class have loaded up on easy credit from quantitative easing (QE) or easy

and cheap credit in the years from 2010 to 2013. A large portion of this was used to speculate on property.

This has the unintended consequence of pricing out housing for young graduates and also the lower

income groups. The middle class are now experiencing withdrawal pangs of the USA’s QE tapering

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exercise. Whilst the middle class do have a relatively high level of savings, we are uncertain how these

savings will stand if there were to be a prolonged property downturn.

The rise in household debt is also mirrored by the continuous rise in government debt. According to some,

the government mandated ceiling of 55% under the Loan (Local) Act 1959, may have already been

breached in August of 2014. As at end 2013, the amount of government debt was about RM540 billion or

54.7% of GDP. In 2013, contingent liabilities which are either explicitly or implicitly guaranteed by the

government was about RM 157 billion, representing another 15.9% of GDP. While we do not expect

significant defaults by most of our GLICs and GLCs, the same cannot be said about Najib’s prized sovereign

wealth fund, the infamous and shadowy 1MDB.

The current debt of 1MDB is estimated to be RM40 billion. In June 2014, it was widely reported that the

fund is in high risk of default, having failed to even cover its interest payments. This fund has been singled

out by rating agencies and investors as the “poster child” of all that is wrong with the fiscal management

of Malaysia by UMNO-BN.

The Malaysian economy has always relied on its one “safety zone” that is trade. We are a trade surplus

country and this has generated the positive results in counterpoint to all the other bad macroeconomic

news. Based on our track record of trade surpluses, economists are not wrong in saying that it is not all

doom and gloom in Malaysia. However we note with worry that our trade surplus is on a downward trend.

Our current account surplus has dropped from RM102 billion in 2011 to RM37.3 billion in 2013. We have

also seen a steady and consistent rise of our neighbours, rolling about policies and ideas that once

powered our economy in the 1980s and 1990s. They have become more competitive and may eventually

diminish our trade advantage. Therefore, we have to be careful not to be lulled into the false sense that

we can further tolerate fiscal mismanagement so long as we have our exports, especially since a significant

portion is commodity-based and facing price downtrend and our manufactures have not sufficiently

improved in complexity and value-added.

Malaysia is a middle income nation. Whilst several Asian countries have advanced into the developed

nation status, we continue to be stuck in the “middle income trap”. The challenge for Malaysia now is to

look at how to boost livelihoods and achievements for all Malaysians from the basics of investments,

labour, resources and technology. There must be a political will and astute leadership to foster good

governance in order to unleash the full potential of our nation. The year 2015 could be a watershed year

and it remains to be seen if Malaysia is ready to break-away from the over long shadow of Barisan Nasional

administration.

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FISCAL: REVENUE

In projecting the fiscal revenue for 2015, our methodology combines the analysis of fiscal growth patterns,

economic data from the Treasury, news and declared policies of the current government.

We note that the government has consistently under-projected its own revenue.

Massaging Revenue: The practice of UMNO-BN in under-projecting Revenue

It is common practice for the Treasury to under-project government revenues. One possible reason

for this practice is to allow the federal government to introduce extra spending via supplementary

budgets; while not affecting significantly the projected budget deficit and government borrowings.

If the government revenue is projected more accurately, the projected government deficit may be

too low e.g. at 2% instead of at 3.5%. If the government needs to spend more via supplementary

budgets, then the financial markets would interpret the change as the government missing its

deficit target i.e. a negative sign of fiscal imprudence.

Table 1 below shows the difference between the projected and actual revenue collected by the

federal government from 2008 to 2013. Government revenue was over-projected for 2009 because

of the global economic crisis that started in 2008. In other years, actual government revenue

exceeded projected government revenue, sometimes as much as 11.8% of almost RM19.6 billion

in the year 2011.

Projected vs. actual government revenue, 2008 to 2013

Source: Treasury and Bank Negara Reports

Projected Government Revenue 2015: RM245 billion

We reviewed the pattern of revenue in three broad categories, namely Direct Taxes, Indirect Taxes and

Non-Tax Revenue based on the latest available data from the Treasury as of March 2014.

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Total government revenue from 2008 to 2013.

In calculating the 2015 projection, we first looked at growth patterns of all sources of revenue to give a

baseline projection for 2014 and 2015. For direct taxes, we focused on Inland Revenue Board (IRB)

announcements for 2014 and ran financial models based on the proposed changes on the income tax

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structure as an off-set to GST in 2015. For Indirect Taxes, we looked at the impact of GST and related

pronouncements and news from the government on their targeted additional revenue. On Non-Tax

Revenue we looked at PETRONAS and its dividend position (RM27 billion). We also looked at oil futures

to project the petroleum royalty. Lastly, we factor in the economic performance of key GLICs and GLCs.

Some of the key factors considered are highlighted below:

1. For 2014, the IRB projects RM140 billion in tax collections, a significant gain from RM129 billion

(revised) in 2013. For 2015, with tax reductions for GST off-set and an adjustment to tax brackets,

income tax growth may increase albeit at a slower rate to RM145 billion.

2. PETRONAS has announced that dividend payments would likely be capped at RM27 billion for 2015.

Oil price futures will continue in the range of USD90 to USD110.

3. GST collection for three quarters of 2015 is estimated to be RM20 billion. After deduction of RM12

billion from sales and service tax, there would be a net gain of RM8 billion for Indirect Taxes for the

period of 1st April 2015 to 31st Dec 2015. We base this on two issued statements made in news reports:

the first quoted a senior officer from The Royal Malaysian Customs saying that the GST will raise an

additional RM5-6 billion; the second quoted the head of Tax for KPMG in Malaysia saying he expects

the GST to raise an additional RM9-10 billion of revenue in 2015 alone.

Thus, we estimate total government revenue to be RM245 billion. As stated earlier, based on our

observations of the practice of under-projections by the UMNO-BN administration, we expect them to

declare a lower projected revenue.

Projected Pakatan Revenue 2015: RM242 billion

On the matter of government revenue for 2015, we are opposed to the implementation of the GST at a

starting rate of 6%. Our detailed comments and criticisms on the matter can be found on page 31 of this

document. Our tax policy will see a Capital Gains Tax for equities (CGT) put in lieu of GST. We view CGT as

a widely accepted progressive tax whereas GST is completely regressive in nature. If we were to

implement the CGT while maintaining the sales and service tax, there will still be an additional RM3 billion

in taxes.

In addition, our tax policy also focuses on eliminating corruption and rent seeking at collection points. For

instance, we will never enter into any profit share arrangement with private companies in collection taxes.

Instead of privatization or an incentivized concession scheme, we prefer a straight forward service

contract model. As such, we strongly condemn and reject the plans of UMNO-BN to profit share tax

collection with private companies such as MyEG Services.

By exerting the political will to weed out corruption and rent seeking in revenue collection, we can expect

a conservative overall savings of RM1 billion.

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One of the most valuable, but undervalued assets belonging to the Federal government is its landholdings.

Valuable lands owned by the Federal government are widely regarded to have either been sold or

swapped at below-market prices. Among the notable and questionable land deals are the 1MDB TRX deal

for TUDM Sungai Besi, the former RRI land to EPF, and the former Tunku Park near Stadium Merdeka to

PNB.

On the matter of licenses, we note that many licenses are given out to companies without full and fair

payment. For example, there are widespread doubts about: the pay-TV operating license given to Astro

and more recently, the Asia Broadcasting Network (ABN) and also the 4G operating license awarded to

current telcos and a newcomer, Puncak Semangat. Pakatan Rakyat believes that a more open and public

auction system could generate billions in additional revenue. We expect a conservative overall savings of

RM3 billion per annum from proper auctioning of land sale and licenses.

Lastly, we will commit to a lower PETRONAS dividend policy at RM25 billion for 2015 and to gradually

scale this down to RM20 billion in the following years. We are mindful not to “kill the golden goose,” and

we plan to invest these dividends via a heritage fund.

All other revenue sources being the same, our revenue projections amount to RM242 billion in total for

2015.

Pakatan Rakyat endorses some of the views and observations highlighted in Thomas Piketty’s “Capital in

the Twenty-First Century”. Moving forward, Pakatan Rakyat acknowledges that income inequality, a

chronic socio-economic problem in Malaysia, will continue to stunt socio-economic mobility and further

entrench the corrupt positions of the elites in UMNO-BN. Thus we shall give serious consideration to the

taxing of capital in order to encourage it to focus on real and productive economic activities. For starters,

we propose the implementation of CGT for equity trading.

The ultimate tax policy goal of Pakatan Rakyat is to keep income tax rates relatively low and at the same

time increase the tax-to-GDP ratio. In other words, collect more taxes by increasing the number of tax

payers but to reduce the tax rate burden per payee overall. In order to do so, we must uplift the poorer

majority to earning a living wage, go after the elite tax dodgers, close tax loopholes and better regulate

the shadow and non-productive financial activities of the rich and powerful. We must also make tax

collection more efficient and less discretionary. Clear regulations and stern enforcement need to be

implemented, in order to plug leakages and waste at all collection points.

About 35% of our revenue comes from the oil and gas sector. We must diversify our tax base and move

away from our overdependence on oil and gas or risk suffering as a “resource cursed” nation. Our detailed

comments and criticisms on this dependency is found in this document on page 28.

There is also a need to increase the contribution of indirect taxes, which are more resilient than direct

taxes in recessionary times. However, indirect taxes should focus mainly on asset and capital gains and

less on consumption spending. We must work to rebalance the economy through the further

diversification of our goods and services; this will then ensure that future taxes are also diversified and

more sustainable. Ultimately, our tax policy will determine if we are able to service and pay off Malaysia’s

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growing mountain of government debt; RM540 billion in 2013 and which is now on the verge breaching

the 55% debt ceiling.

FISCAL: EXPENDITURE

In projecting the fiscal expenditure for 2015, we analyzed the expenditure components and spending

growth at every ministry. We factor in news reports and declared policies by the government and note

the deliberate policy shifts to pursue more off balance sheet spending and privatizations.

As our previous alternative budgets have done, we will project the UMNO-BN expenditure and our own

plan, for comparative purposes. In addition, this document will also identify and analyze patterns of

UMNO-BN expenditure.

Projected UMNO-BN Expenditure 2015: RM283 billion

Mirroring the under-projection of revenue, UMNO-BN regularly under-projects expenditure too. To

authorize increase in subsequent spending, UMNO-BN compels Parliament to rubber stamp

supplementary budgets. The process is devious; in many instances, UMNO-BN will first spend the money

and then get Parliament to retrospectively approve the money already spent.

It is clear that the pattern of under-projections much loved by UMNO-BN is a blatant abuse of power. It

also skews and disguises the true nature of the national budget. This practice makes a mockery of the

budget process, discredits the credibility of the nation and does not respect the rakyat. It also puts us on

a back foot in terms of our sovereign ratings. See our observations in the box below.

Similar to the government revenue projections, the expenditure projections are also

underestimated. The practice of tabling up to 3 supplementary budgets a year is not uncommon.

If the budget is carefully crafted, the difference between projected and actual spending should

not exceed ±2%. In the case of UMNO-BN, the table below shows that the actual expenditure can

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and do swing wildly from 7.1% to 15.8%. Most notable are the big swings in the years of 2008,

2010, 2011 and 2012. We expect that by year end, 2014 will be another swing year.

This practice of under-projection confirms that the UMNO-BN government has very little financial

discipline and is addicted to discretionary spending.

Projected vs. actual government expenditure, 2008 to 2013. 2013 actual expenditures have not been finalized.

Source: Treasury and Bank Negara Reports

In addition to the above and pursuant to our efforts to identify patterns, we ask four additional questions.

The four questions are as follow:

1. What is the estimated total expenditure for Budget 2015 based on historical data?

2. What are the trends for operational and developmental expenditure?

3. Have civil service emoluments been keeping up with the growth of the national budget?

4. Which ministries have abnormally high or low wages to operational expenditures?

Question 1:

What is the estimated total expenditure for Budget 2015 based on historical data?

Estimated government expenditure from 2010 to 2014, and projected expenditure for 2015.

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The national budget has been growing at a rate of 8.40% (mean) and 8.45% (median) annually.

Using these figures, the projected expenditures for Budget 2015 will be between

RM286,339,684,000 to RM286,471,759,500 (i.e. approximately RM286.4 billion).

However, we are mindful of one other major factor of expenditure, that is, the deep subsidy cuts pursued

by UMNO-BN. We estimate a reduction of overall fuel subsidies by RM6 billion and a likely increase of

BR1M costs by another RM3 billion. This means that the projected UMNO-BN expenditure for 2015

amounts to RM283 billion.

Question 2

What are the trends for operational and developmental expenditure?

Amounts of operational and developmental expenditures and year-on-year comparison.

Operating expenditure is expected to be in the range of RM242,397,918,700 to

RM243,921,475,700, with developmental expenditure to be between RM44,928,300,000 to

RM44,970,150,000 respectively. This is based on the mean and median percentages of increase

from 2010 to 2015. These measures were then used to forecast the operational and developmental

expenditure for Budget 2015. This means that the projected 2015 operational to developmental

ratio is 86:14.

The mean and median annual increase of operational expenditure are 12.07% and 11.37%

respectively, while the mean and median annual decrease of developmental expenditure are 3.29%

and 3.38% respectively.

The gap between operational and developmental expenditure has been widening from

RM85,059,000,000 in 2010 to RM171,151,000,000 in 2014. This gap is expected to be within the

range of RM197,469,618,700 to RM198,951,325,700 in 2015.

RM million % RM million %

2010 138,279 53,220 85,059 2.60

2011 162,805 24,526 17.74 51,182 -2,038 -3.83 111,623 3.18

2012 181,584 18,779 11.53 51,249 67 0.13 130,335 3.54

2013 201,917 20,333 11.20 49,750 -1,499 -2.92 152,167 4.06

2014 217,651 15,734 7.79 46,500 -3,250 -6.53 171,151 4.68

2015* 242,398 24,747 11.37 44,928 -1,572 -3.38 197,470 5.40

243,921 26,270 12.07 44,970 -1,530 -3.29 198,951 5.42

Op. Expenditure

(RM million)

Dev. Expenditure

(RM million)Year

Change ChangeRatio

Gap (RM

million)

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In theory, as a nation becomes more developed, developmental spending should drop. Another rule is

that as old infrastructure degrades, overlaps with newer infrastructure must occur. Thus the infrastructure

spending cycle is in the region of seven to ten years. We can observe these cycles in Malaysia with the IPP

awards and highway concessions.

We note that since the Najib administration took over, developmental spending in real ringgit terms has

been trending downwards from RM53 billion in 2010 to RM46 billion in 2014. If we factor in inflation, the

actual value of developmental spending is around RM41 billion, a significant drop of 23% from 2010. In

terms of the said ratio, the drop is even more glaring, for every ringgit spent on development in 2014, the

government is spending RM4.68 on operational costs. In 2010, the ratio was much smaller at RM2.60 to

every ringgit.

In consideration of the above two general rules, we also factored in recent key announcements on

developmental infrastructure spending. Herein lies the problem. Malaysia is not yet a fully developed

nation and there is therefore no rationale for the ratio and ringgit terms reductions in developmental

expenditure. Other than the Klang Valley, Penang and Iskandar Johor, we have not seen any major

infrastructure announcements and works. We know that the rural infrastructure and government services

(schools, hospital) of the poorest states of Sabah, Sarawak, Kelantan, Terengganu and Kedah are still

rudimentary. There is an obvious pent up demand for increased developmental spending in these areas.

We also know that the contractors of big infrastructure announcements such as the MRT/LRT extensions

are also facing delayed payments. For both MRT and LRT, the financial exposure to the federal government

is both implicit and explicit. This inability of the government to pay contractors on time suggests a credit

crunch with the sovereign credit quality under pressure. In the latest Malaysia rating by Fitch Rating in

July 2014, the overall outlook remains negative.

The ratio of operational to developmental expenditure has been increasing from 2.60 in 2010 to

4.68 in 2014. The rate of increase in the gap is alarmingly fast.

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Question 3

Have civil service emoluments been keeping up with the growth of the national budget?

Civil service emoluments and annual estimated expenditures, and annual comparisons.

Civil service emoluments has been growing at an average rate of 10.83% annually, and 10.45%

annually by median. Using these measures, civil service emoluments should be within the

RM70,195,494,614-RM70,437,000,164 range in Budget 2015.

Civil service emoluments has been outpacing budget growth since 2012, and this pattern is

expected to hold in 2015.

As for the proportion of civil service emoluments from the budget, it has been growing from 22.02%

in 2010 to 24.06% in 2014.

The above data suggest that the civil service as a group has enjoyed pay increases in the last four years,

which has outpaced both inflation and the overall budget growth. However, on the ground, the picture is

very different. We learnt that a common complaint of the average civil servant is that they have not seen

any significant pay rise. In a news article in September 2014, CUEPACS has confirmed that 60% of the civil

servants earns less than RM3,000 a month and that a promotion for the lower rank civil servants usually

translates to only RM80 to RM100 increase in pay. As a result, most civil servants, like most Malaysians,

are struggling to keep up with price increases for basic goods and food.

There are two possible explanations. The first is that the civil service has continued to grow in numbers,

as such, the increased numbers are driven purely by population growth. In 2011, the number of civil

servants was reported to be around 1.2 million and this number has since grown to about 1.5 million in

2014; an increase of 100,000 a year. Inversely, we also note that periodically the government has also

taken steps to freeze the hiring of civil servants, the last publicly announced action was in June 2011. Since

then the government has shied away from making public statements on the matter but the practice of

slowing down the rate of intake of civil servants is likely to be a policy fact.

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Another explanation to the apparent salary growth is the theory that only the very top civil servants have

been experiencing pay increases in leaps and bounds. These high single digit to double digit growths for

the elite civil servants may have artificially lifted the average base of total emoluments. We believe that

the truth lies in the combination of the above two explanations.

On the matter of civil service emoluments, Pakatan Rakyat will make sure that all future wage increases

are distributed fairly between the executives and the lower income civil servants. The emoluments for

special agencies and statutory bodies must also be reviewed downwards to ensure fairness to the other

civil servants. A comprehensive engagement with CUEPACS will be the starting point in our approach to

ensure that our promise of a living wage for all, including civil servants is fulfilled. We also believe that a

re-energized private sector led economy will encourage the migration of workers from the public sector

to the private sector.

Question 4

Which ministries have the fastest growing allocation, and abnormally high or low wages to operational

expenditures?

Over 2010 to 2014, the Prime Minister’s department has the highest increase in allocations from

the national budget, from RM3,955,945,800 in 2010 to RM16,450,557,500 in 2014 (an increase of

415.84%, or RM12,494,611,700). The Ministry of Domestic Trade, Co-operatives and Consumerism

has the second highest increase over the same time period: an increase of RM754,844,400 or

300.45%).

The Ministry of Education consistently has high emoluments to services and supplies ratio. In 2010,

it was RM9.42 in wages for every RM1 spent on services and supplies. The Ministry of Home Affairs

has a decreasing emoluments to services and supplies ratio: from 2.738 in 2010 to 1.706 in 2014.

Ministries that have high services and supplies to emoluments ratios are the Prime Minister’s

Department, Ministry of Plantation, Industries and Commodities, Ministry of Domestic Trade, Co-

operatives and Consumerism, and Ministry of Federal Territories.

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Estimated expenditures of selected ministries from 2010 to 2014.

Operational, developmental and total expenditures of selected ministries from 2010 to 2014. Services & supplies: emoluments ratios are also indicated in the bottom section of the table. The figures in red are those with unusual ratios.

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When we started analyzing key Ministries, we are somewhat perplexed to see the differing spending

patterns emerging from different Ministries. In particular, we were interested in the relationship ratio

between emoluments and supplies and services.

In theory, and this is applicable for most businesses and organizations in Malaysia (where wages are

relatively low) the ratio between emoluments and supplies and services should be around 1:0.5. In other

words, most businesses and organizations here operate on the basis that for every ringgit we spend on

employees (emolument) we will spend roughly 50 sen on all other office expenses (supplies and services).

Variations to this ratio is expected. For instance, in a low technology factory with high concentration of

cheap migrant labour, the spending on employees could be double that of other expenses, with a ratio of

1:1. In areas where there is just a handful of employees and a lot of expensive equipment and high

technology, the reverse ratio of 1:2 may apply.

We then paid particular focus on the following two key Ministries:

1. The Prime Minister Department (PMD)

2. The Home Office (in particular the police)

For the PMD, we note that in 2014, for every ringgit allocated for emoluments, the PMD allocated RM2.30

on supplies and services. This is a very high ratio and indicates a high level of discretionary spending in the

PMD. It is important to remind ourselves that the PMD does not run any crucial social services like

Education, Health or Security. The office is to oversee and coordinate all the Ministries and yet it has a

budget equivalent to the Health Ministry that runs hundreds of hospitals and clinics and employs

thousands of doctors and nurses.

When we looked at the ratio of the Australian PMO, we find it to be in the polar opposite to Najib’s

administration. We discovered that for every Australian dollar spent on emolument, the Australian PMO

spends a mere 53 cents on supplies and services. The Malaysian PMD has almost five times the allocation

for supplies and services than Australia. Even after we factor in on a “dollar to dollar” basis, and the fact

that the average wage in Australia is double that of Malaysia (A$6,000 c.f. RM3,000), the Malaysian PMD

ratio is still more than twice that of Australia.

For the Home Ministry, we focused on the police and looked at its budget allocation. Conventional wisdom

suggests that a good portion of police work is field work and as such, the police force requires more

equipment than that of a normal desk job. They should have adequate weaponry and vehicles. We

compared the Malaysian police ratio with that of the London Metropolitan Police. We note that for every

ringgit spent on emolument, we spend 53 sen on supplies and services. In London, the ratio is 1:0.34. So

on paper, we are spending almost double the amount more on supplies and services per policeman than

the London police. On the ground, it is hard to believe that the Malaysian police has better and superior

equipment than the London police. Go to any police station in Malaysia and the most common complaints

from officers are the lack of computers and patrol cars.

In addition, when we factor in the ratio of police to population, we note that Malaysia has a ratio of one

policeman to every 290 population (1:290) and the Metropolitan police has a lower ratio of 1:171. In other

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words, what we have is an undersized police force (the Interpol recommended ratio is 1:250) but a higher

supplies and services spending.

The data therefore suggests two possible explanations. First, the relative wages of the London police to

equipment is considerably smaller. A RM2,000 computer is “expensive” relative to the average pay of a

Malaysian police of RM2,500 per month. For a London policeman this computer will be deemed

affordable. Another explanation is that the data clearly suggests a sizeable amount of wastage and

leakages in the procurement of supplies and services. To get a proper perspective on the amount involved,

for 2014 the Home Ministry has a budget of RM3.4 billion for supplies and services. The most probable

explanation would be a combination of the two. Yet, it is undeniable that the Malaysian police is

undersized, poorly equipped and poorly paid.

We understand that country comparisons may be fraught with evaluation and measurement problems.

After all, no country is ever alike in terms of stages of development and culture. However our simple

comparative analysis here supports the need for a lot more transparency and accountability in our fiscal

expenditure. After all, expenditure (not revenue) is the feeding trough for corruption, wastage and

leakages of UMNO-BN. The numbers provide us directions to look and a means to confirm what we

observe on the ground. Our commitment is to reallocate our budget spending within each Ministry so that

they are in line with international best practices.

Projected Pakatan Expenditure 2015: RM273 billion

On the matter of our expenditure for 2015, we first start at looking at the total supplies and services bill

of the government. For 2015, we project supplies and services will amount to RM44.9 billion.

We believe that with a strong political will, we could immediately achieve a conservative 10% savings on

all supplies and services. This amounts to RM4.5 billion in savings. Our ultimate goal is to roll out a

procurement model as recommended by the Open Government Partnership (OGP). We believe that such

a procurement system will eventually see savings up to 20% of current supplies and service bill.

Total supplies and services expenditure for the federal government.

We continue to reiterate that the Prime Minister Department (PMD) has far too large a budget. We looked

at all significant Ministries that have budgets above RM5 billion. By far the largest percentage increase in

spending was in the PMD. The PMD has more than doubled its expenditures from RM7.1 billion in 2008

to RM16.5 billion in 2014, an incredible increase of 132%. In comparison, the Ministry of Education, the

largest Ministry by overall allocation, only saw a 31% increase in expenditure from the same period of

2008 to 2014.

Expenditure (RM million) 2010 2011 2012 2013 2014 2015 Low Projection 2015 High Projection

Supplies and Services

Operational 20,880 28,165 30,506 33,720 36,565 39,595 40,487

Developmental 9,068 3,983 6,663 6,235 5,155 4,177 4,401

Total 29,948 32,149 37,169 39,956 41,720 43,772 44,888

20

Projecting ahead, we estimate that the PMD would have a budget of RM17.5 billion for 2015. For Pakatan

Rakyat, we propose a progressive scaling down of the PMD to RM10 billion for 2015 and then eventually

settling at RM5 billion per annum target budget within a few years thereafter. This scale-down will result

in an estimated savings of RM7.5 billion for our 2015 budget.

Breakdown of operational and developmental expenditure of the Prime Minister's Department.

Below are some specific areas where we will focus our budget cuts on:

1. A total cancelation of funding for the “brainwashing” programs of Jabatan Hal Ehwal Khas or JASA

(RM24m) and Birotata Negara (RM60m).

2. A very drastic reduction in funding for these superfluous and expensive programs: PEMANDU

(RM39m), Talentcorp (RM78m).

3. Re-examine funding for Malaysia Nuclear Energy (RM6m), the National Service/Program Khidmat

Latihan Negara (RM668m). The key is to prioritise safety, accountability and value for money.

4. Re-examine and drastically reduce grants to GLCs and corporations such as the RM300m development

grant that was given to 1MDB in the 2014 budget, the RM939m which was given to KLIAB, the

RM200m which was given to Indah Water Konsortium (IWK) and the RM4b in Facilitations Funds in

2014 that was allocated via the Public Private Partnership or UKAS.

We expect the above cuts to result in about RM500 million in savings.

In addition to cutting costs of the above programs, a consolidation exercise of several overlapping

agencies needs to be carried out. This consolidation will result in significant cost savings. We have

identified the following agencies that have overlapping functions with oversight on the matter of

innovation, productivity and entrepreneurship. They include Unit Inovasi Khas (RM106m), Agensi Inovasi

Malaysia (RM20m), Malaysia Industry Group for High Technology (RM20m), the Malaysian Productivity

2010 2011 2012 2013 2014

Actual Actual Actual Actual Projected Low end High end

Operational

10000 Emoluments 816,448,700 983,484,180 1,085,029,400 1,249,081,300 1,240,425,100 1,346,419,200 1,373,223,660

20000 Supplies and Services 2,240,124,100 2,543,887,420 2,787,041,500 2,627,406,900 2,845,837,200 2,997,265,475 3,076,629,390

30000 Assets 19,122,700 37,199,200 45,061,000 42,162,400 51,443,900 59,524,200 60,015,550

40000 Fixed Charges and Grants 879,046,100 1,511,760,200 1,820,233,800 1,660,168,900 1,729,701,800 1,918,705,050 1,942,365,725

50000 Others 704,200 420,000 2,185,000 2,195,000 2,207,000 2,218,000 2,582,700

TOTAL 3,955,445,800 5,076,751,000 5,739,550,700 5,581,014,500 5,869,615,000 6,324,131,925 6,454,817,025

Developmental

20000 Supplies and Services 206,466,400 883,632,000 638,622,736 1,250,865,900 1,336,130,900 1,618,547,025 1,684,884,982

30000 Assets 7,732,962,300 8,179,047,900 5,902,355,892 4,012,751,900 3,869,811,600 2,904,023,925 2,853,539,454

40000 Fixed Charges and Grants 298,515,300 1,716,578,000 1,230,576,172 3,798,000,000 5,375,000,000 6,644,121,175 6,872,531,350

TOTAL 8,237,944,000 10,779,257,900 7,771,554,800 9,061,617,800 10,580,942,500 11,166,692,125 11,410,955,786

2015 Expenditure ProjectionsExpenditures in Prime

Minister's Department (RM)

21

Council or MPC (RM37m) and most recently, the Malaysian Global Innovation and Creativity Center or

MAGIC (RM50m). We expect this consolidation exercise to save RM100m.

We will also re-examine the spending allocation for the programs and initiatives under the National Blue

Ocean Strategy (NBOS) – RM913m in 2014, the National Key Economic Areas (NKEAs) – RM2.17 billion in

2014 and the National Key Results Areas (NKRAs) – RM1.33 billion in 2014. The effectiveness of some of

these programs have been called into question, in particular the NKRA for the reduction of crime, where

we have clashed with UMNO-BN on the variable statistics and data provided. In total, the NBOS, NKRA

and NKEA costs RM4.5 billion annually. We expect the cuts above to save RM1.5 billion.

We also continue to stress that an overhaul of the subsidy mechanisms and programs needs to be carried

out. The current system does not inspire confidence and its failures manifest in illegal activities such as

cooking oil and diesel smuggling by crime syndicates. Everything else being equal, our expenditure

amounts to RM273 billion in total for 2015.

As a matter of principle, our budget strives to reverse the UMNO-BN trend of reducing developmental

expenditure. We thus propose for 2015 to start the process of re-balancing the spending between

operation and development expenditure to a more reasonable 80:20 ratio, as opposed to the UMNO-BN

ratio of 86:14. In particular, we will direct developmental spending to the rural areas of Sabah, Sarawak,

Kelantan, Terengganu and Kedah. Within a few years, we aim to normalize to a target ratio of between

70:30 to 75:25.

Finally, we will push for the adoption of the budget process to be more open and transparent. In particular,

we will consider recommendations made by the International Budget Partnership, and the use of their

Open Government Survey tools. In its latest survey in 2012, the UMNO-BN government stood at an

embarrassingly low position of 62 out of 98 countries in the Open Budget Index.

We will also ensure that the same principles of budgetary transparency and accountability be extended

to all our GLICs and GLCs, in particular Petronas, which generates 35% of the national revenue. Petronas

would do well to adopt the Extractive Industries Transparency Initiative as means to better disclose and

plan our decreasing oil and gas revenues. We must prepare for a future without oil and gas, which begins

with an honest and transparent budget.

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PROJECTED BUDGET TO GDP

GDP computation

After two quarters of relatively strong growth, we expect the last two quarters of 2014 to slow down

significantly. As such the growth projections for 2014 is expected to average somewhere between 5.3%

to 5.8%. The Governor of Bank Negara, Tan Sri Zeti Akhtar Aziz expects Malaysia’s growth rate in 2014 to

be at 5.5%. This view is concurred by the Minister-in-charge of the Economic Planning Unit (EPU), Dato

Seri Wahid Omar. As for 2015, most banks and economists agree that the growth rate for 2015 is expected

to slow to 5.0% or below.

Assuming we take the high end growth rate of 5.8% for 2014 and a projected nominal growth rate of 9.3%

(real growth rate + inflation as a proxy for the GDP deflator), we will arrive at the figure of RM833 billion

for real GDP (2005 constant prices) and RM1078 billion for nominal GDP for the year 2014. For 2015,

based on a projected real growth rate of 5.0% and a projected nominal growth rate of 9.0% (real growth

rate + inflation as a proxy for the GDP deflator), we will arrive at a figure of RM875 billion for real GDP

(2005 constant prices) and RM1176 billion for nominal GDP.

Historical GDP data from 2008 to 2013, and projected figures for 2014 and 2015.

Source: Department of Statistics, Malaysia; World Bank; Asian Development Bank; OKM Analysis

UMNO-BN vs. Pakatan Rakyat Deficit

23

ECONOMIC MISMANAGEMENT OF BARISAN NASIONAL

Malaysia’s current economic rot is neither something new nor unexpected. The rot started almost a

decade ago. The causes and the symptoms are well known to most observers and economists. Malaysia

is stuck in a middle income trap and with every passing year our economy is finding itself harder and

harder to compete with lower cost developing countries.

The prolonged economic sluggishness has caused most ordinary Malaysians to suffer higher cost of living.

The average Malaysian worker has seen already low wages falling behind even as corporations and

tycoons rake in higher than normal profits. Of late, the people have also suffered a series of price hikes in

basic goods. These price hikes are caused by poor economic management and the situation is exacerbated

by the precarious finances of the Barisan Nasional government, buckling under a mountain of national

debt.

Many economists have prescribed several long-term actions that need to be implemented to take

Malaysia out of the rot and to regain our economic competitiveness. These include the following:

1. A total revamp of our education system and learning institutions to produce more technology savvy,

creative, innovative and entrepreneurial graduates to lift our economy to the next level.

2. Eliminating the culture of corruption and rent seeking from our economy and to plug all wastage and

leakages in the administration.

3. To develop and transform the small and middle enterprises sector into a major economic pillar

capable of competing on the world stage.

The Barisan Nasional government has announced various economic plans, targets and incentive programs

to bring Malaysia out of the middle income trap. At the start of his term as Prime Minister, Dato’ Seri Najib

Tun Razak announced his New Economic Model. At the same time, the Federal government announced

the 10th Malaysian Plan. In a short space of time, Malaysia was introduced to various abbreviations and

jargons, from the NKRA to the ETP. Unfortunately these are now hollow hallmarks of the Najib

administration; they sound great, but lack substantive implementation.

After more than five years, it is now clear that the grand economic plans and programs of the Najib

administration have failed to lift the economy out of the rot. In fact, ordinary Malaysians have continued

to suffer economic hardship as Najib continues to blissfully announce more and more wasteful mega

projects.

Why have all these brilliant plans designed at great expense by world renowned management consultants,

economists, scholars and members of the Treasury produced little to no meaningful results? Why is the

Malaysian trajectory to a prosperous and fair economy for all, drifting further and further away?

To stop Malaysia's economic rot is not an impossible task. Economists and thinkers have made several

correct diagnostics and even prescribed credible solutions. The problem is clearly not due to the absence

of solutions. The problem is in the leadership. Those entrusted to implement the solutions continue to

lack the political will to do the right thing.

Since 2008, the people can compare for themselves the administrative track records of the Pakatan Rakyat

states versus that of the Barisan Nasional federal government. In terms of economic administration, it is

24

clear that we are much better. The economic results are not primarily a matter of ideological or policy

differences. The results are primarily attributable to the quality, sincerity and credibility of the leaders and

lawmakers of Pakatan Rakyat compared to those from Barisan Nasional.

Even with the very best economic plan, if the implementation is entrusted to a corrupt, deceitful

government that only serves itself and special interest groups, it will inevitably result in disaster for the

nation. A government that is quick to privatize profits and callous in raising the price of basic goods will

not possess the heart nor the political will to lift the Malaysian economy out of the current economic rot.

As such, Pakatan Rakyat does not seek competition with Barisan Nasional on who has the ability to write

cleverer economic policy per se. What distinguishes us fundamentally from Barisan Nasional is our

economic policies are implemented by sincere and credible leaders, grounded on the principles of social

justice for the people.

Our primary duty, as the Opposition to the federal government is to question, pressure and make the

government of the day accountable to the public. That is why despite all the challenges, we fearlessly

continue to expose and fight to stop the bad practices of the Barisan Nasional. Until we rule Putrajaya, if

our current efforts can stop some of these bad practices, then perhaps the sluggish Malaysian economy

can finally see some light at the end of the tunnel.

We have identified five bad economic practices of the Barisan Nasional. We aim to stop and where

possible bring positive changes to these bad practices. These bad practices are as follow:

1. A systemic culture of corruption in the government and the administration of the economy;

2. An unsustainable over dependence on oil and gas revenue;

3. The lack of transparency and incompetence in negotiating the Trans Pacific Partnership Agreement

(TPPA); and

4. A regressive tax system that helps the rich and punishes the poor.

Our views and measures to address and rectify these five economic bad practices of Barisan Nasional are

discussed in the next few chapters.

25

POOR GOVERNANCE

The Federal Government’s overall expenditure has risen in the last five years since Dato’ Seri Najib Tun

Razak became Finance Minister.

There are five main components of the Federal government budget, namely supplies and services, assets,

grants/fixed payments, developmental spending and emolument. With poor governance by Barisan

Nasional, the first four components (except emolument) remain vulnerable to corruption and leakages.

Even the grants and fixed payments which are said to be less vulnerable to corrupt practices are currently

being compromised. After all, there is a yearly increase of the Federal government’s expenditure locked

into fixed payments for long-term agreements such as building lease concessions, fixed rent, profit

indemnity and others.

The Najib administration’s inclination towards privatization via public-private partnership (also known as

PPP) to build infrastructure and roll out government projects means that the yearly spending on

concessions, rent, indemnity and other practices categorized in the national budget as fixed payments,

will continue to rise.

Based on data about government expenditure and processes from 2010 to 2014 and a ballpark figure of

30% fixed payments, we can estimate the amount of Federal government expenditure that is exposed to

corruption annually. The data is tabled below:

Projected federal government expenditure exposed to corruption.

The Federal Government expenditure that is exposed to corruption is therefore estimated at RM118

billion in 2013 and RM124 billion in 2014. As such, there is a strong case to implement anticorruption

measures. A robust and effective program can result in savings and have a tremendous positive effect to

the financial position of the Federal Government.

A conservative estimation of the rate of leakage and corruption is about 10% (meaning that for every RM1

spent, 10 sen is lost to corruption). Thus, fighting corruption and plugging this leakage will easily produce

projected savings of as much as RM11.8 billion for 2013 and RM12.4 billion 2014. People familiar with the

procurement processes of the current Federal government, are likely to believe that the rate of leakage

and corruption is much higher than 10%.

Below is a table of potential projected savings that can be achieved based upon different rates of leakages

and corruption in Federal Government expenditure.

26

Projected savings based on different rates of leakages and corruption in federal expenditure.

After being battered by prolonged and continuous budgetary deficits, the financial position of the Federal

government is now extremely weak. In addition, it is also saddled by an enormous national debt that has

almost breached the permitted legal limit. The easiest and most efficient step to take in order to improve

this financial predicament without burdening the rakyat would be to declare an all-out war on corruption

and leakages. However this step is not being carried out. Ironically, the very reason given by Dato’ Seri

Najib Tun Razak for cutting various subsidies (resulting in higher prices of goods as well as piling on more

burden to the people) is that these measures are necessary in order to reduce the budgetary deficit. This

reasoning is flawed as the place to start reducing the deficit must surely be with fighting corruption.

Pakatan Rakyat estimates that the corruption and leakage rate of 10%, is equivalent to 1% of deficit to

GDP. Therefore, by eradicating corruption and leakages, the Federal Government’s deficit can easily be

reduced by as much as 1% of GDP.

By using the following projections and estimates for the year 2015:

1. Nominal Gross Domestic Product (GDP) at RM1,176 billion;

2. Deficit target that was set by Dato’ Seri Najib Tun Razak at 3.2%;

3. Total estimates for Budget 2015 that is set to be announced by Dato’ Seri Najib Tun Razak at RM283

billion;

Pakatan Rakyat is able to estimate the following reduction to the national deficit from the eradication of

corruption and leakages:

Rate of leakage and the corresponding reduction in national deficit to GDP if leakage is eliminated.

Most, if not all Malaysians agree that the eradication of corruption and leakages is a national priority. This

priority is not just a matter of ensuring a more sustainable economy, but also a basic question of morality

27

and social justice. In this age of information, the people should not tolerate the actions of the elites that

continue to misuse power and amass great wealth.

The fight against corruption is going to be a lengthy one and it is insufficient to merely create campaigns

and slogans. The fight requires a complete revamp of the system of governance from the ground up. The

revamped system must prove effective in both preventing and uncovering corruption, as well as punishing

the corrupt.

Therefore, the fight against corruption is essentially a process of forming and reinforcing good

governance. This process not only eradicates corruption (consequently reducing the national deficit), but

also promotes a new set of values that encourages meritocracy and accountability, which rewards

hardwork and creativity.

This value system is needed to create a sustainable economy. The fight against corruption and leakages

does not detract from the goal of achieving a developed nation status. In fact it is an essential prerequisite

to the very goal. The existence of deep rooted corruption is not only a sign of a weakness in the Barisan

Nasional administration, but is also what keeps us away from the same goal of a developed economy.

Unfortunately, the Najib administration continues to neglect the fight against corruption. Its political

system, one that is based upon patronage in UMNO-BN, in fact relies upon the expansion of corruption

and leakages to sustain itself. At the receiving end of these leakages are the politicians from the ruling

party as well as their cronies.

Looking beyond the facade of various costly anti-corruption government campaigns, the real measure of

true conviction to combat corruption and leakages should be the total number of politicians that have

been accused and charged with bribery since Najib became Prime Minister. Based upon the statistics

confirmed by Senator YB Dato’ Paul Low in Parliament, in the years between 2010 to August 2013 (nearly

four years), only nine politicians have been investigated and only five charged. Even then, there remains

a high chance that not one of them will eventually be convicted and punished.

This shameful track record is in line with the overwhelming perception of the majority of Malaysians that

politicians, apart from policemen, are the most corrupt in the country. This perception of widespread

corruption is confirmed year after year by Transparency International in the publication of the Corruption

Perception Index (CPI). According to the CPI 2013, out of a list of 177 nations, Malaysia ranked 53rd, far

behind Singapore at 5th place. Without good governance, it is not surprising that Malaysia continues to

struggle in achieving a developed nation status.

Deep rooted corruption will continue to flourish as long as the Najib administration continues to depend

heavily on it for political survival.

Time and time again, the current administration has failed to tackle the national deficit problem without

burdening the people. The Najib administration needs to fight corruption instead of the people by way of

deep cuts in oil and other subsidies.

28

Without the political will to fight corruption, a good governance framework cannot take root. The creation

of a value system that takes the economy to the next level will never happen. Without good governance,

an economic policy however well written and crafted will ultimately fail.

Unfortunately, the fate of billions of our taxpayers’ money in this Najib administration’s Budget 2015,

looks set to continue to fundamentally fail.

OVER-RELIANCE ON OIL AND GAS REVENUE

Despite having discovered an abundance of oil and gas in our country over 100 years ago, our economy

has never relied on this industry as heavily as it does in the last decade or so. Presently, the over-reliance

on oil and gas revenue poses a serious threat to our economy as our national oil and gas reserves continue

to shrink. As a result of dwindling reserves, PETRONAS has to venture overseas to explore and purchase

oil and gas reserves in order to support the nation’s financial needs. This means that PETRONAS will need

strong financials in order to compete with other global oil corporations.

Since 2008, the Barisan Nasional administration has been relying heavily upon rising crude oil prices to

paper over their financial mismanagement. Their dependency on oil revenue is essential as it continues

to fail to stop wastage of public funds and create an image of positive economic growth.

In addition to paying a special petroleum tax and petroleum export duty, PETRONAS and other oil and gas

companies also pay a huge sum of income tax to the Federal Government. In addition, the Barisan

Nasional administration also imposes a hefty fixed dividend upon PETRONAS that is up to 10 times more

than the norm.

All in, this creates an unhealthy reliance upon oil and gas revenue, especially from PETRONAS.

Our over-reliance upon the oil and gas industry can be estimated below (all figures in RM billion):

Breakdown of revenue from the oil and gas industry from 2008 to 2013, and % of contribution of the oil

and gas to federal income.

This addiction towards oil and gas revenue is dangerous for two main reasons:

29

Firstly, it paints a false picture that the economy is fundamentally robust and that we can continue to

spend recklessly whereas in truth, we are seeing the Federal Government continue to fail in building a

more sustainable industry. The industry, as it stands, is extremely volatile. Any fluctuation in global crude-

oil prices, along with any consequential geopolitical conflicts can drastically affect the industry’s earnings.

Secondly, this addiction will continue to greatly weaken the financial position of PETRONAS, since a large

portion of its profits will not be re-invested. Subsequently, PETRONAS will slowly lose its ability to compete

internationally.

For these reasons, Pakatan Rakyat is of the opinion that the government needs to set a new target to

drastically reduce its reliance on oil and gas revenue within the next 5 years. In addition to that, steps to

ramp up transparency and accountability in the management of our nation’s oil and gas reserves must be

taken immediately.

It is unfortunate that many Malaysian companies treat transparency as a management problem that

needs to be avoided. This culture, nurtured by Barisan Nasional is ever present in corporate Malaysia.

Transparency is often frowned upon, as if it were a cancer to corporate practices.

PETRONAS, as a national icon, ought to adopt transparency as an essential tool to transform its future. By

adopting transparency, it will also help the nation towards conforming to corporate best practices.

PETRONAS has seen a change of leadership since Najib came into power. Its current management has

introduced some controversial policies, including:

1. Changing its long-term investment strategy of building up foreign reserves to focusing on marginal

national fields;

2. Granting risk service contracts (RSC) to connected companies regardless of capabilities or experience.

Compared to production sharing contracts (PSCs), RSCs lock in upfront profits to contractors,

essentially pushing risks back to PETRONAS.

3. RAPID, a mega petrochemical complex which may have serious environmental impact on the local

populace; and

4. Giving an unfair advantage to big oil companies by imposing conditions that only they can fulfil, hence

bypassing able local companies from competing.

The need to enforce transparent and accountable measures is urgent. At least one-third of Federal

Government annual expenditure is derived from funds from PETRONAS. Moreover, little to none of this

precious revenue is being saved and invested for future generations. Our current law only requires

PETRONAS to report directly to the Prime Minister. This arrangement has led the Najib administration to

a false belief that PETRONAS is his to use as his government’s personal bank.

The 2015 Pakatan Rakyat budget places its primary focus upon transparency and accountability in

economic governance. This focus is extended to how PETRONAS should be managed.

Pakatan Rakyat will:

30

1. Launch a public campaign to pressure both the Najib administration and senior management of

PETRONAS to compel PETRONAS to join the Extractive Industries Transparency Initiative (EITI) from

2015 onwards. EITI is an international initiative that aims to increase transparency in the management

of a nation’s natural resources. It achieves this by setting international standards on evaluations and

compliance. BP, Exxonmobil and Royal Dutch Shell have all joined the EITI initiative. PETRONAS has

not. It is therefore not surprising that Malaysia ranked lower than its neighbours in the 2013 Revenue

Watch Institute’s list on natural resource management efficiency. Malaysia ranked 34th out of 58

countries, behind Timor Leste (13th), Indonesia (14th) and Philippines (23rd). Even Mongolia is ahead of

Malaysia at 26th place. This atrocious ranking needs to be rectified and the government must be made

accountable.

2. Introduce a Private Members’ Bill in the Dewan Rakyat in 2015 to amend the current provisions under

the Petroleum Development Act 1974.

The proposed Private Members’ Bill will include:

a. The formation of a Select Committee in Parliament consisting of both government and

opposition MPs with expertise in the oil and gas industry to oversee PETRONAS;

b. A compulsory annual audit by the National Audit Department of both PETRONAS and any

other oil and gas funds;

c. Requiring the process of appointing the Chairman and CEO of PETRONAS to be vetted and

debated in Parliament;

d. Requiring PETRONAS to submit an annual report on its financials and performance to

Parliament;

e. Limiting PETRONAS dividend to a fair formula that considers its profits; and

f. Saving a portion of PETRONAS profits into a special fund that may only be used for purposes

approved by Parliament, such as education, human resource development and technology.

Pakatan Rakyat firmly believes that the above drastic steps are needed to curb and turn around the

government’s over reliance on oil and gas revenue. We sincerely want to see 2015 to be a turning point

in building a more sustainable PETRONAS for all Malaysians.

31

OUR TAX SYSTEM: CAPITAL GAINS TAX

It is the government’s responsibility to ensure that the economy grows at a healthy rate and sufficient

space is given for entrepreneurs and businesses to undertake economic activities without undue

interference. A competitive business environment will foster growth in the economy, which will lead to

more government revenue through increased tax collection. The taxes which are collected should then

be used to create a social safety net that protects low-income households in our society.

This is the concept of taxation which is adopted by Pakatan Rakyat. Fairness in the tax system means the

poor should not be taxed as much or more than the rich. The GST is a regressive tax, which means the low

income groups will bear a higher tax burden than the wealthy. The GST is therefore not fair.

Based on this principle, Pakatan Rakyat stands firm against the implementation of the GST until there is a

rise in the rakyat’s disposable income level.

The Treasury estimates that a household with monthly earnings of less than RM4,000 will experience an

additional annual tax expenditure of between RM140 to RM700. The increase in tax expenditure for

households earning RM4,000 and above is estimated at more than RM1,550 per year.

This increase in tax burden threatens to bring those consumers from the lower-income group further

down the income bracket as it is estimated that households earning less than RM4,000 a month spend

32.6% on items subject to GST. For middle-income households, up to 60% of goods and services consumed

by this group is estimated to be subject to GST.

The Najib administration, which insists on implementing the GST on the 1st of April 2015, is very likely to

face serious challenges. If not managed properly, the rakyat, be it the consumer or the business

community, will be forced to suffer the heavy economic burden as a consequence.

The challenges following the implementation of the GST are:

1. Price increases that will punish low income families, exacerbated by the withdrawal of fuel subsidies.

The distribution of BR1M by the Federal Government is not sufficient to cover the price increases of

goods and services, in addition to the fact that not all middle and low income families will receive

BR1M. In fact, the shift from fuel subsidies to the more comprehensive BR1M handouts will not

change much in a vein similar to the Malay proverb, “That which is pursued is not obtained, that which

is possessed is also lost” since the temporary BR1M handouts will not solve the problem of the

increase in the cost of living.

2. Potential cash flow problems for business owners. Government implementation must be as smooth

as silk to ensure that businesses that are eligible for refunds get them on time, or suffer dramatic

impact on their company cash flow. With the high rate of 6% as the introductory GST rate set by the

government, the impact of hiccups in its implementation, whether inevitable or not, will be hard to

avoid.

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3. Housing prices are still exposed to price hikes because they are not categorized as industries being

subjected to zero-rated GST taxation. This means that while housing developers and the construction

industry cannot impose GST on residential properties, they also cannot make claims on GST charges

on building materials. The only option left to the housing developers and the construction industry is

to raise housing prices to the consumer in order to preserve their profit margins or to avoid making

losses. The same thing will also occur in industries which have been given tax-exempt status but not

zero rated status.

We reiterate our belief that the time is not right for GST. Nevertheless, Pakatan Rakyat knows that in

reality, the GST will be imposed by the Najib administration due to financial pressures faced by the Federal

Government.

In 2015, the focus of Pakatan Rakyat in relation to the GST is as follows:

1. Increase public understanding of GST and raise awareness amongst business owners through the

provision of free courses to those who cannot afford to attend GST courses which charges a fee; or

those who do not have the opportunity to attend the free information sessions conducted by various

government agencies.

2. Strive to provide sectors of public interest with zero-rated status so as to limit the increase in prices.

More importantly, continued pressure needs to be put on the Najib administration to change the tax

treatment of the government from one which taxes the poor to one which taxes capital for the sake of

protecting the welfare of the poor.

Pakatan Rakyat believes that the Federal Government should introduce taxes aimed at the well-off, such

as the Capital Gains Tax (CGT).

Capital Gains Tax (CGT)

The French economist, Thomas Piketty shook the world through his book “Capital in the 21st Century”

which concluded that the wealth gap that separates rich and poor will worsen in the capitalist system if

no specific actions are taken.

Thomas Piketty also suggested that taxes which are more progressive in nature (which taxes the rich and

protects the poor) should be introduced and strengthened. Thomas Piketty’s call can be more easily

understood in the context of Malaysia through the wealth which have been accumulated by the super-

rich and the BN cronies while the poor have become increasingly poor and are burdened by a high cost of

living.

Following the suggestions of Thomas Piketty, Pakatan Rakyat takes the position that a responsible

government will find the fairest ways to tax various forms of capital and profits since these are mostly

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enjoyed by the wealthy. This is different from the view of Barisan Nasional which protects the wealthy

and instead, introduces the GST which are targeted towards the poor and middle income.

If Barisan Nasional continues to use the excuse that GST needs to be implemented because it is also

implemented in other countries, then Dato’ Seri Najib Tun Razak must explain why he is reluctant to

implement the CGT since this is also being implemented in 127 other countries.

In Malaysia, only the capital gains from the sale of properties within 5 years of purchase is taxed (RPGT).

The capital gains from other transactions which involve capital such as the sale of stocks, bonds, other

financial instruments, companies and other assets (other than property) are not charged any taxes even

though these transactions may result in capital gains of many multiples.

The fact is the wealthy will find it much easier to gain access to capital and to participate in business

transactions involving capital in order to obtain a profit.

Pakatan Rakyat estimates that the introduction of CGT will be successful initially in raising taxes of as much

as RM3 billion in 2015. If the economy continues to expand and grow, the proceeds from the CGT as a

result of profitable capital transactions will also increase.

There are some who give the excuse that the introduction of the CGT will result in lower investments. This

is a weak excuse given that all European countries which are part of the OECD imposes CGT. In fact, the

United States and United Kingdom have one of the highest CGT rates in the world of up to 50.8% for the

United States (the fourth highest in the world) and up to 46.7% for the United Kingdom (the eight highest

in the world). It is public knowledge that the financial and capital markets in both these countries are

among the biggest and most dynamic in the world, which demonstrates that the argument that

introducing the CGT will decrease investments has no basis whatsoever.

Pakatan Rakyat proposes the introduction of the CGT in order to tax capital gains made on stock, bond

and other capital transactions involving stocks such as the Employee Share Option Scheme (ESOS).

Pakatan Rakyat also proposes that the introduction of the CGT in Malaysia takes into account worldwide

‘best practices’ including measures which can stabilize the collection of CGT so as to avoid the volatility

experienced in places such as California in the United States.

Inheritance Taxes

In other countries, governments impose an inheritance tax on the transferring of assets among the very

wealthy. Any transfer of assets in the form of gifts or when a death occurs in the family will be charged

inheritance taxes.

Unfortunately, Malaysia does not have any taxes charged on the wealth enjoyed as a result of the transfer

of assets among the wealthy.

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Taking the United Kingdom as an example, a total of GBP2.7 billion (=RM14 billion) was raised from

Inheritance Taxes in 2011. Pakatan Rakyat believes that the imposition of an Inheritance Tax in Malaysia

could also raise significant tax revenues.

Hence, Pakatan Rakyat proposes an Inheritance Tax be introduced for the transfer of assets worth RM5

million and above.

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TPPA

Our economy produces more goods and services than our population can consume. Therefore for

sustained economic growth we depend largely on international trade. In short, Malaysia is a trading

nation.

Pakatan Rakyat believes in free but fair trade. More importantly, we view trade agreements as extremely

important documents. Therefore a thorough cost-benefit study on the economic and legal implications of

such agreements need to be conducted before any signing. All efforts and adequate resources need to be

deployed in helping us with such negotiations. We must also fully engage stakeholders including

lawmakers, industries and the rakyat.

The biggest trade issue we face today is the Trans-Pacific Partnership Agreement. The TPPA has been

touted as an ambitious 21st century trade agreement. It is a complex trade agreement that goes beyond

the traditional sense of trade, tariffs and market access. A sizeable portion of the TPPA focuses on

investments, procurement and national sovereignty issues.

The consequence of the TPPA is that these can restrict our economic sovereignty. Essentially, the TPPA

seeks to impose an American hyper capitalist economic model upon us. This model is used to regulate

trade, set standards and norms which will influence our costs of production and ultimately our

competitiveness.

The TPPA is invasive because it seeks to compel nations to amend their national laws to comply with its

terms. This challenges the basic concept of national sovereignty and limits public policy space of

lawmakers. Contentious chapters include ISDS, intellectual property, costs of medicine, labour and

environmental standards.

Malaysia formally joined in the TPPA negotiations in October 2010. We are now entering our 5th year of

negotiations. It is alarming that the Barisan Nasional government has achieved so little in terms of

preparation and readiness during that period. Without any access to the actual text of the TPPA, how can

we, Pakatan Rakyat make an informed decision to support or reject the TPPA? Without relevant and key

economic data from the UMNO-BN government we cannot even answer the most fundamental question;

whether or not the TPPA will benefit us economically.

In the absence of the texts, the data and other relevant information, we are forced to take a position of

continuously questioning the TPPA. The quarrel we have is not with the foreign countries negotiating with

Malaysia. These countries are not the ones withholding relevant information from us. Our quarrel is with

the UMNO-BN government. The failure to share the texts with our MPs is symptomatic of the style of the

UMNO-BN government. It is a failure of transparency and accountability. UMNO-BN has also failed to

articulate positions and to defend the interests our industries and the rakyat.

The so called stakeholder engagement process adopted by UMNO–Barisan Nasional in negotiating the

TPPA is illustrative of how the government runs this country. No transparency, hence no accountability.

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In addition we have incompetency. We do not make these allegations lightly. In the context of the

negotiations, we understand that the TPPA texts are meant to be secret and meant to evolve as the

negotiations progresses. However within each negotiating country, the government of the day can and

do share the texts with other lawmakers, experts and industry leaders provided they first agree to sign

binding non-disclosure agreements.

However under UMNO-BN, the overall practice in Malaysia is to remain totally secretive. As far as we are

aware, the TPPA texts are only available to a very select few UMNO-BN lawmakers and civil servants. In

this respect Malaysia is very unlike other TPPA negotiating nations. Most nations adopt a working united

front with all their national stakeholders and then empower negotiators to take a policy stand reflective

of its needs and desires.

To date, not one Member of Parliament from Pakatan Rakyat has sighted the texts of the agreement. This

complete secrecy from the purview of Parliament continues till today despite the formation of a bi-

partisan Parliamentary Caucus for more than a year. The Caucus does not have access to the texts and as

such cannot engage in any meaningful policy discussion. We are merely briefed from time to time by the

Minister of broad developments and directions.

More worrying is the fact that no substantial resources nor coherent strategy has been adopted by UMNO-

BN. This is evident from the fact that the government has not prepared basic resources to support the

negotiations. Consider the fact that when asked in Parliament last year, on how many full time trade

negotiators are involved in the TPPA, the government could not even produce an actual head count. The

Minister could not say if there were 5, 10 or 15 persons working on the TPPA. This inability to give straight

answers in Parliament is indicative of the paralysis that is in the government today.

Our reliable sources inform us that there are only 6 full time MITI lawyers, backed by several part time

lawyers from relevant ministries. Compared to the USA, their small army of trade negotiators are backed

by some 400 cleared advisors, lawyers and experts from corporations and organisations.

Moving on to the question of quality of negotiations, we do not even know if our MITI lawyers are fully

trained in international trade matters. All we know is the matter of international trade is highly complex

and highly specialized. Despite our suggestions to the Ministry to engage in